Cryptocurrencies

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I’ve just gotten into the confusing and nascent world of cryptocurrencies recently and was wondering what the board’s thoughts on them are. I’m fascinated with all that I’ve seen so far. Some of my friends have told me Bitcoin and the like are nothing more than a fan while I’ve seen countless enthusiasts across the internet harping on about their futuristic potential. Are they are they’re hyped up to be or merely a fad?

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I tend to believe economists, in that right now they're basically tulips. Though I did see a horrible statistic - that enough energy was used mining bitcoin to power the 140 lowest-power countries in the world last year.

The tech behind it - blockchain - has incredible versatility in usage, and I expect a lot of it to be done. But the currency itself has all the drawbacks of decentralized currency with all the drawbacks of untrustworthy currency. It's an incredibly volatile, oddly non-private, poorly auditable system that basically is useful only to criminals, and even that not so much.

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The thing about bitcoin and such, to my mind, is what anchors it's value ultimately?

With government issued fiat money at least it's value is anchored by the fact it can be used to pay taxes.

Back in the day, when most societies used commodities as money ie gold and silver, those commodities theoretically at least had value besides a means of payment. Though there is an argument to be made, the reason states used gold and silver in the first place wasn't so much because people could make rings and necklaces and such, but because coins made out of metals were hard to forge.

I think a lot of libertarian types love bitcoin because they think that history went down like:

Back in the day, good libertarians mixed their labor with the land and traded gold. And everything was grand. And then evil government moved in and ruined it all. And they view Bitcoin as way to go back to the good old days of libertarians mixin’ their labor with the land and tradin’ gold.

But really, I don’t think that’s they way it happened. The fact is that capitalism as we know it, grew up right with the state, I do believe.

And, I think, typically the place where capitialism as we know it, grew up in England. And I’d argue one of the reasons it was able to flourish there is precisely because the British state was good at issuing safe stores value backed by taxes. And those safe stores of value helped private finance to flourish. Largely, I think the British state tended to dominate it’s enemies in the 18th Century. Some might think it’s secret was it’s navy. But, I think it was the power of its financial system. Compared to its enemies, it could borrow enormous sums of money.

And undergirding the whole thing, was the British state’s ability to tax. Louis XIV might have styled himself as the Sun King and the absolutist monarch of France, but he could only dream of taxing the way the British state did in the 18th Century.

Libertarians that see bitcoin as somehow returning to the garden of eden of free markets, probably ought to read some of the state development literature.

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And, I think, typically the place where capitialism as we know it, grew up in England. And I’d argue one of the reasons it was able to flourish there is precisely because the British state was good at issuing safe stores value backed by taxes. And those safe stores of value helped private finance to flourish. Largely, I think the British state tended to dominate it’s enemies in the 18th Century. Some might think it’s secret was it’s navy. But, I think it was the power of its financial system. Compared to its enemies, it could borrow enormous sums of money.

And undergirding the whole thing, was the British state’s ability to tax. Louis XIV might have styled himself as the Sun King and the absolutist monarch of France, but he could only dream of taxing the way the British state did in the 18th Century.

Apparently England was famous for it's well organized tax system back in Anglo-Saxon times already.

And of course the financial power of the British state in the 18th century was based on the Dutch-inspired improvements brought in after the conquest glorious revolution.

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Apparently England was famous for it's well organized tax system back in Anglo-Saxon times already.

And of course the financial power of the British state in the 18th century was based on the Dutch-inspired improvements brought in after the conquest glorious revolution.

I think that even more than taxes, the existence of independent governmental institutions that safeguarded private propety (both physical and intellectual) and civil rights, was critical for the emergence of capitalism and the subsequent Industrial Revolution in Britain.

Capitalism is at its heart all about entrepreneurship and innovation, and these things can only flourish in a society where the already rich and established individuals can't simply use their wealth and "good ol' boy" networks to shut out or steal the ideas of new entrants.

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The thing about bitcoin and such, to my mind, is what anchors it's value ultimately?

With government issued fiat money at least it's value is anchored by the fact it can be used to pay taxes.

Back in the day, when most societies used commodities as money ie gold and silver, those commodities theoretically at least had value besides a means of payment. Though there is an argument to be made, the reason states used gold and silver in the first place wasn't so much because people could make rings and necklaces and such, but because coins made out of metals were hard to forge.

I tend to view things like bitcoin as largely a libertarian fantasy.

From what I’ve seen there isn’t really anything backing up the value of Bitcoin at all except trust in your fellow users. Bitcoin has also been marketed as “digital gold” so that has helped make it attractive I’m sure.

As far as fiat money goes it seems that the argument runs along the lines of, “well there isn’t anything backing up fiat currency except trust in the government ever since the gold standard was done away with.” I also remember seeing someone point out that it was in the wake of the Great Recession that blockchain was established and that this is merely one of the symptoms of the growing distrust of government and the economic system in general.

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I tend to believe economists, in that right now they're basically tulips. Though I did see a horrible statistic - that enough energy was used mining bitcoin to power the 140 lowest-power countries in the world last year.

The tech behind it - blockchain - has incredible versatility in usage, and I expect a lot of it to be done. But the currency itself has all the drawbacks of decentralized currency with all the drawbacks of untrustworthy currency. It's an incredibly volatile, oddly non-private, poorly auditable system that basically is useful only to criminals, and even that not so much.

Yes the energy consumption of Bitcoin is scary, even at the low amount of transactions it is currently handling. And I believe there is a similar (if smaller) issue with other current contestants.

For crypto-currency to actually take over, rather than being a speculative niche, that energy problem probably needs to be solved.

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I tend to believe economists, in that right now they're basically tulips. Though I did see a horrible statistic - that enough energy was used mining bitcoin to power the 140 lowest-power countries in the world last year.

The stat I saw is that it was approximately the same amount of electricity as Morocco

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Cryptocurrencies are an unfortunate cross roads of libertarian fantasy/delusion and hiding dirty money. From an investment point of view it's a bubble, and the diverse ICOs this year are a scam. None of that prevents the price from racing ever higher until it is brought sharply back to earth. In this era of tax scrutiny and limiting the dark web, and deep into the era of punishing Wolf Of Wall Street-type abuses, I doubt sovereign nations will permit these to go unchecked.

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Bitcoins and such are stored in computer memory. Apart from the prodigious amount of computing power needed to create and verify bitcoin transactions, and it does seem to be an exponential function, a supply of bitcoins stored on a floppy disc, a memory key or a hard drive is susceptible to being accidentally wiped or otherwise become unreadable. The second issue is the cryptography behind it. As of now, it is assumed to be extremely hard to break, but so was Enigma. A new development in mathematics could decrypt the entire blockchain, and in theory cause massive inflation/counterfeiting. Who do you then blame/hang from lamp posts as it is a decentralized 'currency'?

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Quantum computing is absolutely an issue for the security of crypto. But this isn't unforeseen and there are plenty of companies working on quantum-resistant algorithms for public key generation. So we'll see. I don't think this will be as much an issue as people think.

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Quantum computing is absolutely an issue for the security of crypto. But this isn't unforeseen and there are plenty of companies working on quantum-resistant algorithms for public key generation. So we'll see. I don't think this will be as much an issue as people think.

Not really. I seem to recall that NP-complete math problems are now unsolvable, but if a solution to one can be found, this implies that a solution for all can be found. if such happens, existing blockchains need to be re-encrypted again at a huge cost in electricity.

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Not really. I seem to recall that NP-complete math problems are now unsolvable, but if a solution to one can be found, this implies that a solution for all can be found. if such happens, existing blockchains need to be re-encrypted again at a huge cost in electricity.

I don't think the cost will be that much of a problem. If it's the difference between security and not, they'll do it.

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As far as fiat money goes it seems that the argument runs along the lines of, “well there isn’t anything backing up fiat currency except trust in the government ever since the gold standard was done away with.” I also remember seeing someone point out that it was in the wake of the Great Recession that blockchain was established and that this is merely one of the symptoms of the growing distrust of government and the economic system in general.

Well libertarians love to make the argument that we should return to the gold standard because gold has fundamental value, not set by the government. But, as I indicated earlier, the reason why states might have used metals to make state issued money is not because those metals had "fundamental value" but because use of those metals made it difficult for counterfeiters to forge state money. And of course even a gold standard or any metallic standard requires "trust in the government" because the state can always debase the metal currency which it often did and then used the debased currency to increase it's expenditures, which is little different than a government doing money financed (as opposed to bond financed) fiscal spending. Though government money financed fiscal spending may not be a bad thing during liquidity traps and such a thing was seriously discussed by some pretty smart people recently over the last few years.

And while many, particularly libertarian types, might think it would be awesome to have a monetary system independent of governments, I think governments can still screw those up too. I mean take the gold standard. There are strong reasons to believe that it was a primary cause of the Great Depression. In particular, there is a line of scholarship that places most of the blame on the Bank of France and the United States Federal reserve which started to accumulate too much gold and deflating commodity prices. The point is that gold standard was no panacea to monetary problems if the government institutions governing it's use are badly designed.

But, anyway, yeah a lot of Bitcoin enthusiasts tend to be libertarian types that have, in my opinion, a very mixed up view of how things really went down. The issuance of very safe and very liquid government debt instruments was likely very crucial to the development of private financial markets, which is very important to capitalism as we know it. But for many libertarian types bitcoin seems like the route to get to the free market garden of eden, that exist in their imaginations, but is a pure fantasy.

Now I don't know about the rest of the world, but I'd imagine here in the US, bitcoin got quite popular with Randanistas, gold bugs, Glenn Beck fans, ditto heads, the info wars crowd, and other assorted creepy critters cause "Obummer is debasing the currency and rampant inflation is just around the corner!", even though the reality based community tried to tell these people that calm down the demand for money is sensitive to the interest rate.

And I think a lot of libertartian types (particularly those of the Austrian persuasion) have this dream of replacing all state backed fiat money with bitcoin. And you know, I'm not down with that. If the public decides it needs to hold more liquidity, because maybe the public got nervous because somebody forgot to sacrifice a goat, then that extra need for liquidity needs to be provided, if you want to combat recessions. And I certainly feel more comfortable with central banks providing that, though I might quibble with their decisions at times, than libertarians controlling the state of liquidity and declaring they can do as they please because of their property rights.

One the question of bitcoins value. There maybe one good reason why bitcoin has value other than just a Keynesian beauty contest situation. And that could be that many people want to make transactions privately, without having their expenditures tracked. Now I'd guess there is some legitimate need for that. But, I'd also guess that such transactions might be for very very nefarious purposes. And I'd imagine that governments will look to regulate bitcoin and other crypto currencies in order to combat nefarious purposes. And when that happens, and I imagine it, will eventually bitcoin and the like will lose it's value.

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One the question of bitcoins value. There maybe one good reason why bitcoin has value other than just a Keynesian beauty contest situation. And that could be that many people want to make transactions privately, without having their expenditures tracked. Now I'd guess there is some legitimate need for that. But, I'd also guess that such transactions might be for very very nefarious purposes. And I'd imagine that governments will look to regulate bitcoin and other crypto currencies in order to combat nefarious purposes. And when that happens, and I imagine it, will eventually bitcoin and the like will lose it's value.

I really don't think regulation is an issue for BTC enthusiasts. They welcome it because that means it'll become more mainstream and trusted. The issue that they worry about is governments trying to kill it completely.

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I really don't think regulation is an issue for BTC enthusiasts. They welcome it because that means it'll become more mainstream and trusted. The issue that they worry about is governments trying to kill it completely.

I'll just add I really don't have a problem with people using something like bitcoin in order to maintain a degree of privacy when they conduct legal or legitimate transactions.

But, I think there are some bitcoin enthusiasts who think it will replace the current monetary system. And I think that is delusional, nor is it desirable.